PART 7. STATE SECURITIES BOARD

CHAPTER 109. TRANSACTIONS EXEMPT FROM REGISTRATION

7 TAC §§109.1 - 109.8, 109.11, 109.13, 109.14, 109.17

The Texas State Securities Board proposes amendments to twelve rules in this chapter to make nonsubstantive changes. Specifically, the Board proposes amendments to §109.1, concerning Transactions Involving Existing Security Holders; §109.2, concerning Parent Subsidiary Transactions; §109.3, concerning Financial Institutions under the Texas Securities Act, §5.H; §109.4, concerning Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors; §109.5, concerning Dealer Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors; §109.6, concerning Investment Adviser Registration Exemption for Investment Advice to Financial Institutions and Certain Institutional Investors; §109.7, concerning Secondary Trading Exemption under the Texas Securities Act, §5.O; §109.8, concerning Initial Offering Completed; §109.11, concerning Guarantee of Options; §109.13, concerning Limited Offering Exemptions; §109.14, concerning Oil, Gas, and Other Mineral Interests; and §109.17, concerning Banks under the Securities Act, §5.L. The amendments would be made pursuant to the agency's periodic review of its rules and make no substantive changes.

The references to sections of the Texas Securities Act (Act) in §§109.1 - 109.8, 109.11, 109.13, 109.14, and 109.17 would be updated to refer to the correct sections in the codified version of the Act in the Texas Government Code. The codification was adopted by HB 4171, 86th Legislature, 2019 Regular Session, and became effective January 1, 2022. The captions of §§109.3, 109.7, and 109.17 would also be updated to refer to the codified version of the Act. The rest of the amendments would make other nonsubstantive and cleanup changes.

Section 109.1 would also be amended to replace the references to the term "Securities and Exchange Commission" with "SEC" and to abbreviate a cite to the Code of Federal Regulations found in subsection (d). SEC is already a defined term in §107.2, concerning Definitions. The Board has adopted an amendment to §107.2, concerning Definitions, to add "CFR" as a defined term, and the adoption notice for that amendment was submitted to the Texas Register concurrently with this proposal notice.

Sections 109.7(b), 109.8, 109.13, and 109.17 would also be amended to adjust the quotations to the Act in these provisions to be consistent with the codified Act.

Section 109.11 would also be amended to capitalize the term "Commissioner" for consistency.

Section 109.13 would also be amended to add a new definitions subsection in subsection (a) for use in this section, with the current text of that subsection being revised and reorganized into multiple paragraphs to incorporate the added definitions. Subsections (f), (g), and (h) of §109.13 would be renamed with more descriptive and precise captions.

The references to the term "Securities and Exchange Commission" found in §109.13(f)(1) and (l)(3) would also be replaced with "SEC," which is already a defined term in §107.2, concerning Definitions.

Section 109.13(l) would also be amended to add "of this subsection" to paragraphs (3), (4), and (5) of that subsection. Cross references in this section would also be corrected and conformed to the other proposed changes to this section.

Clint Edgar, Deputy Securities Commissioner, and Emily Diaz and Shaun Yarroll, Assistant Directors, Registration Division, have determined that for the first five-year period the proposed rules are in effect there will be no foreseeable fiscal implications for state or local government as a result of enforcing or administering the proposed rules.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have also determined that for each year of the first five years the proposed rules are in effect the public benefits expected as a result of adoption of the proposed rules will be (1) improved readability and clarity by updating terminology, quotations, and references; and (2) statutory compliance by ensuring the rules are current and accurate and that they conform to the codified version of the Act which would promote transparency and efficient regulation. There will be no adverse economic effect on micro or small businesses or rural communities. Since the proposed rules will have no adverse economic effect on micro or small businesses or rural communities, preparation of an economic impact statement and a regulatory flexibility analysis is not required. There is no anticipated economic cost to persons who are required to comply with the rules as proposed. There is no anticipated impact on local employment.

Mr. Edgar, Ms. Diaz, and Mr. Yarroll have also determined that for the first five-year period the proposed rules are in effect: they do not create or eliminate a government program; they do not require the creation or elimination of existing employee positions; they do not require an increase or decrease in future legislative appropriations to this agency; they do not require an increase or decrease in fees paid to this agency; they do not increase or decrease the number of individuals subject to the rules' applicability; and they do not positively or negatively affect the state's economy. Additionally, the proposed amendments do not create a new regulation, or expand, limit, or repeal an existing regulation.

Comments on the proposal must be in writing and will be accepted for 30 days following publication of the proposed sections in the Texas Register. Written comments should be submitted to Cheryn Netz, General Counsel, State Securities Board, P.O. Box 13167, Austin, Texas 78711‑3167. Comments may also be submitted electronically to proposal@ssb.texas.gov. In order to be considered by the Board at adoption, comments must be received no later than 30 days following publication.

The amendments are proposed under the authority of the Texas Government Code, §4002.151, as adopted by HB 4171, 86th Legislature, 2019 Regular Session, effective January 1, 2022 (HB 4171). Section 4002.151 provides the Board with the authority to adopt rules as necessary to implement the provisions of the Texas Securities Act, including rules governing registration statements, applications, notices, and reports; defining terms; classifying securities, persons, and matters within its jurisdiction; and prescribing different requirements for different classes. Additionally, §§109.3, 109.4, 109.8, and 109.14 are also proposed under the authority of the Texas Government Code, §4005.024, as also adopted by HB 4171, which provides that the Board may prescribe new exemptions by rule. Finally, §109.5 and §109.6 are also proposed under the authority of the Texas Government Code, §4004.001, as also adopted by HB 4171, which provides the Board with the authority to prescribe new dealer, agent, investment adviser, or investment adviser representative registration exemptions by rule.

The proposed amendments to §§109.4, 109.13, and 109.14 affect the following sections of the Texas Securities Act: Texas Government Code Chapter 4003, Subchapters A, B, and C. The proposed amendments to §§109.5, 109.6, and 109.14 affect Chapter 4004 of the Act. The proposed amendments to §§109.1 - 109.4, 109.7, 109.8, 109.11, 109.13, 109.14, and 109.17 affect Chapter 4005, Subchapter A of the Act.

§109.1.Transactions Involving Existing Security Holders.

(a) Section 4005.007 [Section 5.E] of the Act includes any offer and any transaction pursuant to any offer by the issuer of its "securities" to any one or more of its "existing security holders" even though such offer or transaction does not relate to all existing holders of such securities or to all existing holders of a class or series thereof.

(b) "Existing security holder" within the context of §4005.007 [section 5.E] does not include the following:

(1) - (2) (No change.)

(c) An employee's activities such as mailing reports, dividend notices, and revised prospectuses do not constitute "soliciting" within the context of §4005.007 [§5.E]. Furthermore, if an employee's job is fully justifiable even without soliciting existing security holders, occasional solicitations of existing security holders in this state will not affect the availability of §4005.007 [§5.E]. However, if an employee's primary job is to solicit existing security holders in this state either on a full-time or part-time basis, §4005.007 [§5.E] is not available.

(d) Where an open-end investment company adopts a plan pursuant to SEC [Securities and Exchange Commission] Rule 12b-1 (17 CFR §270.12b-1, as amended) [(17 Code of Federal Regulations §270.12b-1)] and funds are used to pay commissions or other remuneration for soliciting existing security holders in this state, §4005.007 [§5.E ] is not available.

(e) Where an offering provides for a minimum investment and only a portion of such minimum is paid initially, §4005.007 [§5.E] is not available for payments made subsequently to meet the required minimum investment.

§109.2.Parent Subsidiary Transactions.

Securities issued by a parent corporation for outstanding securities of a corporation in connection with a merger of such corporation into a wholly-owned or materially-owned (80%) subsidiary are exempt within the meaning of §4005.009 [§5.G] of the Act. The exemption also applies to the issuance of securities by the parent corporation in connection with a consolidation where the resulting new corporation is wholly-owned or materially-owned (80%) by the parent. Similarly, securities issued by a parent corporation for the purchase of assets for a wholly-owned or materially-owned (80%) subsidiary are exempt under §4005.009 [§5.G].

§109.3.Financial Institutions under the Texas Securities Act, §4005.011 [§5.H].

The term "savings institution," as used in the Texas Securities Act, §4005.011 [§5.H], includes any federally chartered credit union, savings and loan association, or federal savings bank, and any credit union or savings and loan association chartered under the laws of any state of the United States.

§109.4.Securities Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors.

(a) Availability. The exemption from securities registration provided by the Texas Securities Act, §4005.011 [§5.H ], or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 [§5.H] or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the specific securities for which the seller is claiming the exemption.

(b) Sales to certain institutional investors. The State Securities Board, pursuant to the Act, §4005.024 [§5.T ], exempts from the securities registration requirements of the Act, Chapter 4003, Subchapters A, B, and C [§7], the offer and sale of any securities to any of the following persons:

(1) - (3) (No change.)

(c) (No change.)

§109.5.Dealer Registration Exemption for Sales to Financial Institutions and Certain Institutional Investors.

(a) Availability. The exemption from dealer and agent registration provided by the Texas Securities Act, §4004.001 [§5.H], or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 [§5.H] or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the specific securities for which the dealer or agent is claiming the exemption.

(b) Sales to certain institutional investors. The State Securities Board, pursuant to the Act, §4004.001 [§5.T and §12.C], exempts a person from the dealer and agent registration requirements of the Act, when the person sells or offers for sale any securities to any of the following persons:

(1) - (3) (No change.)

(c) (No change.)

§109.6.Investment Adviser Registration Exemption for Investment Advice to Financial Institutions and Certain Institutional Investors.

(a) Availability. The exemption from investment adviser and investment adviser representative registration provided by the Texas Securities Act, §4004.001 [§5.H], or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in §4005.011 [§5.H ] or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the investment advisory services for which the investment adviser or investment adviser representative is claiming the exemption. For purposes of this section, an investment adviser or investment adviser representative that is providing investment advisory services to a corporation, general partnership, limited partnership, limited liability company, trust or other legal entity, other than a private fund (as that term is defined in §139.23 of this title (relating to Registration Exemption for Investment Advisers to Private Funds)), is not providing investment advisory services to a shareholder, general partner, member, other security holder, beneficiary or other beneficial owner of the legal entity unless the investment adviser provides investment advisory services to such owner separate and apart from the investment advisory services provided to the legal entity.

(b) Investment advice rendered to certain institutional investors. The State Securities Board, pursuant to the Act, §4004.001 [§5.T and §12.C], exempts from the investment adviser and investment adviser representative registration requirements of the Act, persons who render investment advisory services to any of the following:

(1) - (3) (No change.)

(c) - (e) (No change.)

§109.7.Secondary Trading Exemption under the Texas Securities Act, §4005.019 [§5.O].

(a) When a withdrawal of an application for registration of securities is allowed and thereafter the applicant files for a secondary trading exemption under the Act, §4005.019 [§5.O], the Commissioner may, without a hearing, revoke or suspend the §4005.019 [§5.O] exemption. The applicant may either accept such action of the Commissioner or request a hearing under the Act, §4007.107 [§24].

(b) The language, ". . . at prices reasonably related to the current market price of the [such] securities at the time of the [such] sale," means that the market price of the security in the existing secondary market must have a basis supported by a substantial volume of bona fide sales transactions within or without this state. In the absence of a going market or where there have been only casual transactions, it shall be incumbent on the person filing the §4005.019 [§5.O ] exemption notice to prove to the Commissioner that the securities will have a market price which has been fairly determined and justified at inception with reasonable assurance of continuity of the market into the future, pursuant to which the following criteria will be considered:

(1) - (7) (No change.)

(c) Sales of securities pursuant to the Securities Act, §4005.019 [§5.O], may be made by or through securities dealers acting either as principal or agent in the transaction for which the exemption is claimed.

(d) Financial information required pursuant to the Act, §4005.019(b)(9)(B)(ii) and (iii), [§5.O(9)(b) and (c)] must be prepared as certified financial statements (consolidated, if applicable) and shall include a balance sheet as of a date within 18 months of the date of such sale and the related statements of income, changes in stockholders' equity, and changes in financial position for the three most recent fiscal years ending as of the balance sheet date, or for the period of the issuer's existence, if less than three years. Such financial statements should disclose dividends paid or declared by each class of stock, for each period for which an income statement is presented.

(e) The term "recognized securities manual" as used in the Texas Securities Act, §4005.019 [§5.O(9)(c) ], is limited to Best Insurance Reports Life-Health, any Mergent's Manual, and the OTC Markets Group Inc. website (www.otcmarkets.com) for a company that is currently or has recently been quoted on the OTCQX or OTCQB markets. This designation encompasses both print and electronic data and includes periodic supplements to these publications. The information provided in the recognized securities manual must contain the information specified in subsection (d) of this section. All information provided must be current. The time for determining whether the entries are current is at the date of the particular sale, not the date the manual listings are published. If a listing is not continually updated, the exemption would not be available once the published balance sheet becomes more than 18 months old.

(f) The secondary trading exemption under the Act, §4005.019 [§5.O], is not available for the securities of an issuer formed in a manner that constitutes part of a scheme to violate or evade the securities registration provisions of the Act. Depending upon all the facts and circumstances, such a scheme may include the merger of a private corporation with a corporation which has no substantive operations or assets ("shell corporation") when as a result of the merger trading in the secondary market of the shares of the post-merger corporation may be at prices which bear no relationship to the underlying financial condition or operations of the post-merger corporation, and such trading may occur within two years of the date of such merger.

§109.8.Initial Offering Completed.

The phrase "initial offering of the [such] securities has been completed," used in §4005.020 [section 5.P] of the Act, means that any nonexempt public distribution of such securities has been completely sold to the public.

§109.11.Guarantee of Options.

(a) - (c) (No change.)

(d) In lieu of the three requirements in subsections (a) - (c) [(a)-(c)] of this section, the section 4005.023(b)(1) and (b)(2) [section 5.S(1)] guarantee requirements will be satisfied if the option is issued by a clearing corporation recognized by the State Securities Board as satisfying all the following standards.

(1) - (2) (No change.)

(3) The clearing corporation must be registered as a national clearing agency under the Securities Exchange Act of 1934, as amended, and must file with the Commissioner [commissioner ] a copy of the prospectus respecting such option currently being delivered pursuant to the requirements of the Securities Act of 1933, as amended, and further must agree to promptly file with the Commissioner [commissioner] a copy of any amendments of such prospectus.

(4) - (5) (No change.)

(e) (No change.)

§109.13.Limited Offering Exemptions.

(a) The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. [Public solicitation, well-informed, and sophisticated investor. The offer for sale or sale of the securities of the issuer would not involve the use of public solicitation under the Act, §5.I, if the issuer, after having made a reasonable factual inquiry has reasonable cause to believe, and does believe, that the purchasers of the securities are sophisticated, well-informed investors or well-informed investors who have a relationship with the issuer or its principals, executive officers, or directors evincing trust between the parties (namely close business association, close friendship, or close family ties), and such purchasers acquire the securities as ultimate purchasers and not as underwriters or conduits to other beneficial owners or subsequent purchasers. The use of a registered dealer in a sale otherwise meeting the requirements of §5.I does not necessarily mean that the transaction involves the use of public solicitation. The offer without advertising to a person who did not come within the class of persons described in this subsection does not alone result in public solicitation if the issuer had a reasonable cause to believe and did believe that such person fell within the class of persons described, and that such offer was not made indiscriminately.]

(1) Private Offering Exemptions. The term "Private Offering Exemptions" refers to §4005.012 and §4005.013 of the Act. [The term "well-informed" could be satisfied through the dissemination of printed material to each purchaser prior to his or her purchase, which by a fair and factual presentation discloses the plan of business, the history, and the financial statements of the issuer, including material facts necessary in order that the statements made, in the light of circumstances under which they are made, not be misleading.]

(2) Limited Offering Exemptions. The term "Limited Offering Exemptions" refers to the two limited offering exemptions found in subsections (a)(1) and (a)(2) of §§4005.012 of the Act. The term "Limited Offering Exemption (a)(1)" refers to the exemption in subsection (a)(1) of §4005.012 of the Act, and the term "Limited Offering Exemption (a)(2)" refers to the exemption in subsection (a)(2) of §4005.012 of the Act. [In determining who is a sophisticated investor at least the following factors should be considered.]

[(A) The financial capacity of the investor, to be of such proportion that the total cost of that investor's commitment in the proposed investment would not be material when compared with his total financial capacity. It may be presumed that if the investment does not exceed 20% of the investor's net worth (or joint net worth with the investor's spouse) at the time of sale that the amount invested is not material.]

[(B) Knowledge of finance, securities, and investments, generally. This criteria may be met by the investor's purchaser representative if such purchaser representative has such knowledge, so long as such purchaser representative:]

[(i) has no business relationship with the issuer;]

[(ii) represents only the investor and not the issuer; and]

[(iii) is compensated only by the investor.]

[(C) Experience and skill in investments based on actual participation. This criteria may be met by the investor's purchaser representative if such purchaser representative has such experience and skill, so long as such purchaser representative:]

[(i) has no business relationship with the issuer;]

[(ii) represents only the investor and not the issuer; and]

[(iii) is compensated only by the investor.]

(3) Registration Sections. The term "Registration Sections" refers to Subchapters A, B, and C of Chapter 4003 of the Act.

(4) Public solicitation. The offer for sale or sale of the securities of the issuer would not involve the use of public solicitation under the Private Offering Exemptions if the issuer, after having made a reasonable factual inquiry has reasonable cause to believe, and does believe, that the purchasers of the securities are sophisticated, well-informed investors or well-informed investors who have a relationship with the issuer or its principals, executive officers, or directors evincing trust between the parties (namely close business association, close friendship, or close family ties), and such purchasers acquire the securities as ultimate purchasers and not as underwriters or conduits to other beneficial owners or subsequent purchasers. The use of a registered dealer in a sale otherwise meeting the requirements of either §4005.0012 or §4005.013 does not necessarily mean that the transaction involves the use of public solicitation. The offer without advertising to a person who did not come within the class of persons described in this subsection does not alone result in public solicitation if the issuer had a reasonable cause to believe and did believe that such person fell within the class of persons described, and that such offer was not made indiscriminately.

(5) Well informed. The term "well-informed" could be satisfied through the dissemination of printed material to each purchaser prior to his or her purchase, which by a fair and factual presentation discloses the plan of business, the history, and the financial statements of the issuer, including material facts necessary in order that the statements made, in the light of circumstances under which they are made, not be misleading.

(6) Sophisticated investor. In determining who is a sophisticated investor at least the following factors should be considered.

(A) The financial capacity of the investor, to be of such proportion that the total cost of that investor's commitment in the proposed investment would not be material when compared with his total financial capacity. It may be presumed that if the investment does not exceed 20% of the investor's net worth (or joint net worth with the investor's spouse) at the time of sale that the amount invested is not material.

(B) Knowledge of finance, securities, and investments, generally. This criteria may be met by the investor's purchaser representative if such purchaser representative has such knowledge, so long as such purchaser representative:

(i) has no business relationship with the issuer;

(ii) represents only the investor and not the issuer; and

(iii) is compensated only by the investor.

(C) Experience and skill in investments based on actual participation. This criteria may be met by the investor's purchaser representative if such purchaser representative has such experience and skill, so long as such purchaser representative:

(i) has no business relationship with the issuer;

(ii) represents only the investor and not the issuer; and

(iii) is compensated only by the investor.

(b) Advertisements. The term "advertisements" does not include the use of the type of printed material as set out in subsection (a) of this section under the discussion of the term "well-informed." Further, the main concept to be considered in a definitional analysis of the term "advertisements," as it is used in the Private Offering Exemptions [§5.I,] is the method of use of the printed material. The following circumstances, though not intended to be exclusive, will be considered in determining whether the method of use of any printed material is within the limits of the Private Offering Exemptions [§5.I]:

(1) - (4) (No change.)

(c) Number of security holders or purchasers of securities. In computing the number of purchasers or security holders for the Private Offering Exemptions [§5.I], the following criteria shall be used.

(1) (No change.)

(2) There shall be counted as one purchaser or security holder any corporation, partnership, association, joint stock company, trust, or unincorporated association, organized and existing other than for the purpose of acquiring securities of the issuer for which the exemption is claimed under the Private Offering Exemptions [§5.I].

(3) Any general partner of a limited partnership who is subject to general liability for the obligations of the limited partnership and actively engages in the control and management of the business and affairs of the limited partnership or of the managing general partner of the partnership shall not be counted as a purchaser or security holder for purposes of the Private Offering Exemptions [§5.I].

(4) The Limited Offering Exemptions [exemptions contained in the Act, §5.I(a) and (c)], as interpreted in subsections (a) - (j) of this section may not be combined with the exemptions promulgated pursuant to the Act, §4005.024 [§5.T], contained in subsections (k) and (l) of this section to exceed sales to 35 unaccredited investors in a 12-month period.

(5) "Security holders" or "purchasers of securities," as those terms are used in the Limited Offering Exemptions [Act, §5.I(a) and 5.I(c),] do not include holders of any options granted pursuant to a plan that falls within the exemption for compensatory or benefit plans provided by §4005.013 of the Act[, §5.I(b)].

(d) Total number of security holders. The phrase "the total number of security holders of the issuer" in the Limited Offering Exemption (a)(1) [§5.I(a)] includes all security holders of the issuer without regard to their places of residence (within or without the State of Texas) and without regard to where they acquired the securities. In determining the number of persons for purposes of the Limited Offering Exemption (a)(2) [§5.I(c)], prior sales to persons residing outside the State of Texas and prior sales to Texas residents consummated outside the State of Texas shall be included unless such sales were made in compliance with §139.7 of this title (relating to Sale of Securities to Nonresidents).

(e) Other exemptions. The phrase "exempt under another provision of this subchapter [other provisions of this §5]" in §4005.012(b)(1) [§5.I(c)] means exempt under any provisions of the Act, other than the Limited Offering Exemption subsection (a)(1) of this section [§5.I(a)], and subsections (k) and (l) of this section.

(f) Compensation plans and contracts exemption found in §4005.013 of the Act [Compensatory or benefit plans].

(1) No public solicitation or advertisement under §4005.013 of the Act [§5.I] occurs by the distribution to eligible persons of a prospectus filed under the Securities Act of 1933 with the SEC [Securities and Exchange Commission] for the plan or any other material required or permitted to be distributed by the Securities Act of 1933 in connection with such plan when the securities under the plan are sold or distributed in a transaction otherwise meeting the requirements of §4005.013 [§5.I(b)].

(2) Insurance agents who are exclusive agents of the issuer or its subsidiary or derive more than 50% of their annual income from the issuer or its subsidiary are deemed "employees" as that term is used in §4005.013 [§5.I(b)].

(g) Sales made under §4005.013 of the Act. [Compensatory or benefit plan sales.] Only the employer and its participating subsidiaries, parents, or subsidiaries of such parents, if any, may offer or sell securities in connection with the employee plan without registration as dealers. For purposes of §4005.013 of the Act. [§5.I(b)], the term "issuer" includes a general partner of a limited partnership with respect to a security sold or distributed by such limited partnership in a transaction otherwise meeting the requirements of §4005.013 of the Act [§5.I(b) ]. An employee of the issuer or its participating subsidiary who aids in offering or selling such securities in connection with the plan is not required to be registered as an agent provided the employee meets all of the following conditions:

(1) - (3) (No change.)

(h) Section 4005.013 [Compensatory or benefit] plans for counting purposes. A noncontributory stock ownership plan or stock ownership trust that holds securities of the issuer for the benefit of the participants in that issuer's plan shall be counted as one security holder under the Limited Offering Exemption in (a)(1) of this section [§5.I(a)]. Plan participants in such a stock ownership plan or trust will not be deemed security holders of the issuer for purposes of counting security holders under the Limited Offering Exemption in (a)(1) of this section [§5.I(a)] solely because of their participation in the plan or trust. However, participants receiving distributions of securities from the plan or trust will be deemed security holders of the issuer on receipt of securities of the issuer from the plan or trust.

(i) Notices. There is no notice filing requirement for sales made under the Private Offering Exemptions [the Act, §5.I(a), (b), or (c)].

(j) (No change.)

(k) Limited offering exemption coordinating with SEC Regulation D, Rule 506. In addition to sales made under the Private Offering Exemptions [Texas Securities Act, §5.I], the State Securities Board, pursuant to the Act, §4005.024 [§5.T], exempts from the registration requirements of the Registration Sections [Act, §7], any offer or sale of securities offered or sold in compliance with the Securities Act of 1933, Regulation D (17 C.F.R. §§230.500-230.508, as amended), Rule 506, including any offer or sale made exempt by application of Rule 508(a), and which satisfies the following further conditions and limitations.

(1) - (5) (No change.)

(6) When an offering is made in compliance with Regulation D of the SEC and the offering will be made by or through a registered securities dealer, the issuer and its directors, officers, agents, and employees may make themselves available to answer questions from offerees, as required by Rule 502(b)(2)(v) of Regulation D, without being required to register as securities dealers or agents under Chapter 4004 of the Act[, §12].

(l) Intrastate limited offering exemption. In addition to sales made under the Private Offering Exemptions [Texas Securities Act, §5.I], the State Securities Board, pursuant to the Act, §4005.024 [§5.T], exempts from the registration requirements of the Registration Sections [Act, §7], any offer or sale of any securities by the issuer itself, or by a registered dealer acting as agent for the issuer provided all offers and sales are made pursuant to an offering made and completed solely within this state and all the conditions in paragraphs (1) - (11) of this subsection are satisfied.

(1) The sale is made, without the use of any public solicitation or advertisements, as set forth in subsections [subsection] (a) and [subsection] (b) of this sectionto:

(A) (No change.)

(B) other well-informed investors who are "accredited investors" as defined in §107.2 of this title (relating to Definitions). (For purposes of this subsection, the term "well informed" shall have the same meaning as set out in subsection (a)(5) [(a)(1)] of this section, and the term "Private Offering Exemptions" ["5.I"] in such subsection shall include sales made pursuant to this subsection.)

(2) (No change.)

(3) The prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business in the state in which the administrative order or judgment was entered against such party or, if the order or judgment was entered by federal authorities, the prohibitions of subparagraphs (A) - (C) of paragraph (2) of this subsection shall not apply if the party subject to the disqualifying order is duly licensed to conduct securities-related business by the SEC [Securities and Exchange Commission]. Any disqualification caused by paragraph (2) of this subsection is automatically waived if the state or federal authorities which created the basis for disqualification determine upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied.

(4) For purposes of paragraphs (2) and (3) of this subsection only, "issuer" includes any directors, executive officers, general partners, or beneficial owners of 10% or more of any class of its equity securities (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities), and "registered dealer" shall include any partners, directors, executive officers, or beneficial owner of 10% or more of any class of the equity securities of the registered dealer (beneficial ownership meaning the power to vote or direct the vote and/or the power to dispose or direct the disposition of such securities).

(5) Upon application, and for good cause shown, the Commissioner may waive a disqualification contained in paragraph (2) of this subsection.

(6) The offering complies with subsections (a) - (d) and (j) of this section. However, persons who are "accredited investors" as defined in §107.2 of this title are deemed to be "sophisticated" as defined in subsection (a)(6) [(a)(2)] of this section.

(7) This subsection may not be combined with either of the Limited Offering Exemptions [the Securities Act, §5.I(a) or §5.I(c)], or subsection (k) of this section to make sales to more than 35 unaccredited security holders during a 12-month period. Except for accredited investors who became security holders pursuant to this subsection, security holders who purchase in sales made in compliance with this subsection are included in the count of security holders under the Limited Offering Exemption subsection (a)(1) of this section [under §5.I(a)] or purchasers under the Limited Offering Exemption subsection(a)(2) of this section [§5.I(c)], but this subsection may be used to exceed the numbers of security holders or purchasers allowed by such sections over an extended period of time.

(8) - (9) (No change.)

(10) Accredited investor security holders who purchase in sales made under this exemption are not counted as security holders under the Limited Offering Exemption subsection (a)(1) of this section [§5.I(a)] or purchasers under the Limited Offering Exemption (a)(2) [§5.I(c)] in determining whether any other sales to other security holders or purchasers are exempt under the Private Offering Exemptions [§5.I]. That is to say, this exemption for sales to accredited investors is cumulative with and in addition to the Private Offering Exemptions [exemptions contained in §5.I], and sales made under paragraph (1)(B) of this subsection are not considered in determining whether sales made in reliance on the exemptions contained in the Private Offering Exemptions [§5.I] would be within the numerical limits on the number of security holders or purchasers contained in the Private Offering Exemptions [§5.I].

(11) (No change.)

§109.14.Oil, Gas, and Other Mineral Interests.

(a) It is the intent of the State Securities Board that §109.13(a) - (c) and (j) of this title (relating to Limited Offering Exemptions) apply to transactions made pursuant to the Securities Act, §4005.021 [§5.Q], and that the terms defined in §109.13(a) - (c) and (j) of this title [(relating to Limited Offering Exemptions)] have the same meanings for purposes of §4005.021 [§5.Q] as they do for exemptions set forth in §4005.012 and §4005.013 of the Securities Act[, §5.I].

(b) For the purposes of §4005.021 [§5.Q ], an employee of the owner of an oil, gas, or mineral lease, fee, or title may aid such owner/employer in selling interests in such lease, fee, or title and will not be considered an agent required to be licensed under the Act provided all the following conditions are satisfied:

(1) - (3) (No change.)

(c) In addition to sales made under the Securities Act, §4005.021 [§5.Q], the State Securities Board, pursuant to the Act, §4005.024 [§5.T], exempts from the registration requirements of the Act, Chapter 4003, Subchapters A, B, and C [§7], the sale of interests in and under oil, gas, and mining leases, fees, or titles, or contracts relating thereto (hereinafter called securities), by the owner itself, or by a registered dealer acting as agent for the owner, provided all of the conditions of §109.13(k) or (l) of this title [(relating to Limited Offering Exemptions)] are met. The purpose of this subsection is to provide a mechanism which will allow for sales of the securities listed herein to accredited investors where the conditions of §109.13(k) or (l) of this title [(relating to Limited Offering Exemptions)] are met.

(d) Exemption for transactions among persons in the oil and gas industry.

(1) In addition to offers and sales made pursuant to the Act, §4005.021 [§5.Q], the State Securities Board, pursuant to the Act, §4005.024 [§5.T ], exempts from the securities registration requirements of the Act, Chapter 4003, Subchapters A, B, and C [§7], and the dealer and agent registration requirements of the Act, Chapter 4004 [§12 and §18], the offer and sale of any interest in or under an oil, gas, or mining lease, fee, or title, or payments out of production in or under such leases, fees, or titles or contracts relating thereto by the owner or an agent for the owner when such offer or sale is made to persons and/or companies each of whom the owner or owner's agent shall have reasonable cause to believe and does believe meets the following criteria:

(A) - (C) (No change.)

(2) (No change.)

(3) For purposes of this rule, an "agent for the owner" includes the following:

(A) - (B) (No change.)

(C) persons who meet the dealer registration requirements of Chapter 4004 of the Securities Act[, §12]; and

(D) (No change.)

(4) (No change.)

(e) Any person who acts as an agent of an owner or a purchaser in connection with a sale of an interest described in subsection (d) of this section to a person who does not meet the criteria set forth in subsection (d)(1)(A) - (C) of this section will not be exempt from the dealer registration requirements of Chapter 4004 of the Act[, §12,] unless another exemption is available.

§109.17.Banks under the Securities Act, §4005.016 [§5.L].

(a) The phrase "a [any] savings and loan association organized and subject to regulation under the laws of this State" shall include any Texas state chartered savings bank.

(b) The phrase "a [any] federal savings and loan association" shall include any federally chartered savings bank.

(c) The phrase "a [any] bank organized and subject to regulation [. . .] under the laws of . . . [any State or territory of the United States]" shall include any Texas state chartered limited banking association.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on March 18, 2024.

TRD-202401195

Travis J. Iles

Securities Commissioner

State Securities Board

Earliest possible date of adoption: April 28, 2024

For further information, please call: (512) 305-8303